Reviews: 'Capital in the Twenty-First Century' by Thomas Piketty, 'Seventeen Contradictions and the End of Capitalism' by David Harvey

Capitalism illustration

Illustration by Robert Neubecker, Chicago Tribune

"Capital in the Twenty-First Century" by Thomas Piketty and "Seventeen Contradictions and the End of Capitalism" by David Harvey explore the cons of modern capitalism.

"Capital in the Twenty-First Century" by Thomas Piketty and "Seventeen Contradictions and the End of Capitalism" by David Harvey explore the cons of modern capitalism. (Illustration by Robert Neubecker, Chicago Tribune)

Michael Robbins

James Surowiecki wrote recently in The New Yorker of Stephen Schwarzman, chairman and CEO of the private-equity firm Blackstone Group. Schwarzman is worth more than $10 billion. But he's convinced that he is being persecuted. Some have called for the government to close a tax loophole that nets him oodles. According to Schwarzman, this is exactly like the Nazi invasion of Poland. He wants Americans to stop "blaming wealthy people" for their problems. He wants to increase income taxes on the poor. I share Schwarzman's outrage about American resentment of the super rich, but my indignation is a bit differently inflected. I'm befuddled that there is so little class anger directed toward these arrogant plutocrats. As Warren Buffett has said, "There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning."

Some background. The financial crisis of the mid-'70s led the capitalist class to initiate wage repression and deregulation and to crush the political power of organized labor. Real wages have stagnated, the value of the minimum wage has declined. Throughout the '60s and '70s the minimum wage in real dollars was higher than it is today; if it had kept pace with productivity, it would be over $21 an hour. Meanwhile, CEO compensation has increased by 937 percent since 1978, and 21.7 percent since 2010. Worker pay since 2010 has fallen by 1.3 percent. The ratio of CEO to worker pay in the United States is about 325 to 1, several times that found in any other industrialized country.

And this is just the average. John Cassidy points out that in 2011, Apple's Tim Cook was paid "6,258 times the wage of an average Apple employee." Inequality of income from work in the United States is, writes economist Thomas Piketty in "Capital in the Twenty-First Century," "probably higher than in any other society at any time in the past, anywhere in the world."

Piketty's nearly 700-page book — crammed with graphs and charts and data sets and subsections with titles like "What Do Central Banks Do?" — has become the unlikeliest of best-sellers. Piketty demonstrates in terrifying detail, with painstaking statistical research, that free-market capitalism, in the absence of major state redistribution, produces profound economic inequalities. Specifically, after redistributive policies in the mid-20th century narrowed the income and wealth gap somewhat, the gap has widened again in the last few decades, approaching levels not seen since before World War I. Furthermore, even as income inequality grows, wealth is more and more concentrated in the top 1 percent (at least in three of the four countries he studies — the U.S., Sweden and France; the Financial Times has questioned Piketty's data for British wealth inequality). The richest 85 people in the world own more wealth than the poorest 3.5 billion people. You read that right.

To say that the broad strokes of this picture should not surprise anyone who has been intermittently conscious during the past 40 years is not to diminish the enormity of Piketty's contribution. The fine strokes matter. But, as the economic geographer David Harvey points out on his blog, the thesis that capitalism produces ever-greater inequality is hardly new: It was precisely the theoretical conclusion of the first volume of Karl Marx's "Capital," published in 1867. Harvey notes that Piketty's "Capital"

is not a book about capital at all. It does not tell us why the crash of 2008 occurred and why it is taking so long for so many people to get out from under the dual burdens of prolonged unemployment and millions of houses lost to foreclosure. It does not help us understand why growth is currently so sluggish in the U.S. as opposed to China and why Europe is locked down in a politics of austerity and an economy of stagnation.

These questions are inextricable from the most important question raised by Piketty's findings: Why does this trend toward greater inequality over time occur? Piketty offers an explanation that doesn't really explain much: r > g. This means that the rate of return on capital (r) always exceeds the rate of income growth (g), or "wealth accumulated in the past grows more rapidly than output and wages. ... The past devours the future." Piketty calls this capitalism's "central contradiction."

But Harvey notes that this statistical regularity (not a law) simply raises the further question, What forces produce and sustain such a contradiction? Marx's answer would be "the imbalance of power between capital and labor," Harvey writes. "And that explanation still holds water." He quotes Alan Budd, an economic adviser to Margaret Thatcher, whose anti-inflation policies in the '80s were, according to Budd,

a very good way to raise unemployment, and raising unemployment was an extremely desirable way of reducing the strength of the working classes. … What was engineered there in Marxist terms was a crisis of capitalism which recreated a reserve army of labour, and has allowed capitalists to make high profits ever since.

Under Thatcher and Ronald Reagan and their ideological brethren, organized labor was smashed, state interventions such as welfare and progressive tax rates were rolled back, public industries were privatized, regulatory constraints on industry (including the financial sector) were reduced, national borders became porous for capital. Subsequently, wages fell, unemployment raged, inequality grew. And the rich got a lot richer.

These policies of neoliberalism and globalization, as they are generally known, arose as a response to a particular crisis of capitalism, and led, decades later, to our current crisis. It is the nature of these crises Harvey studies. Why do they recur throughout the history of capitalism? In his latest book, "Seventeen Contradictions and the End of Capitalism," Harvey shows, as did Marx before him, that they result from "the contradictions of capital," by which he means something very different from Piketty's "central contradiction." Where the latter is a mere logical contradiction, Harvey draws on Marx's inverted Hegelianism to examine the dialectical contradictions of capital — "two seemingly opposed forces … simultaneously present within a particular situation, an entity, a process or an event." He explicates, as his title promises, 17 of these, in three sections, "The Foundational Contradictions," "The Moving Contradictions" and "The Dangerous Contradictions."

Harvey begins with the basic contradiction that is familiar to most college students, that between use value and exchange value. My apartment has use value: Most obviously, it provides me and my cat with shelter. Its exchange value — which includes the rent I pay each month to enjoy its use — is another matter (especially in New York City). These two values are often at odds with each other — not least because exchange value fluctuates — constituting a contradiction. In the case of housing, the contradiction (which involved speculation in housing asset values) led recently to a worldwide economic crisis in which millions of people lost their homes and jobs. But this was hardly the first time the pursuit of maximal exchange values has diminished access to necessary use values for ordinary people.

Harvey goes into far more detail than this, of course. Each contradiction, as well as its dialectical relationship to the others and to the system as a whole, is clearly elucidated. By the time he gets to the possibly fatal contradictions — that between capital and what we call nature, for instance — he has presented a primer in the Marxian analysis of capital that happens to provide an accurate picture of why we're in the mess we're in. The more accurate in that it is unabashedly, defiantly partisan, relentlessly dedicated to the proposition that "the economic engine of capitalism … should be replaced."

That engine is, of course, capital. Harvey is at pains to stress, contrary to Piketty, that capital is "a process not a thing … a process of circulation in which money is used to make more money, often, but not exclusively, through the exploitation of labor power." There is no reason that this process should dictate how we live, no reason it should be allowed to enrich Stephen Schwarzman while families sleep in tent cities, while students are forced into debt peonage, while so many work so hard for so little. It is surely right to blame the wealthy for many of our problems, but it is more important to blame the process that allowed them to become wealthy in the first place.

Where Piketty suggests reforms within capitalism, such as a global wealth tax, that are political nonstarters, Harvey (in 2010's "Enigma of Capital") insists that "questioning the future of capitalism itself as an adequate social system ought … to be in the forefront of current debate." Reining in CEO compensation and similar desiderata would merely ameliorate inequity, not eliminate the internal contradictions that produce it.

Karl Marx wrote of the "magic and necromancy" in which commodities are shrouded, along with our relations to them and to one another as producers of them. How much more magical seem the products of so-called fictitious capital (ask someone to explain what a collateralized debt obligation is). Not only does Harvey illuminate — clearly, systematically, persuasively — why capital fails us now (and always), but he urges us to interpret the world in order to change it. Capital must be understood, its veils rent, its mysteries revealed, in order that we might see what must be done and how to do it. As Harvey put it at the end of "Enigma," "Capitalism will never fall on its own. It will have to be pushed. The accumulation of capital will never cease. It will have to be stopped. The capitalist class will never willingly surrender its power. It will have to be dispossessed."

Michael Robbins is the author of the poetry collections "Alien vs. Predator" and "The Second Sex" as well as a forthcoming book of criticism, "Equipment for Living."